WealthTech Europe Summit 2017

3rd October 2017

A sincere thank you to all those who attended and supported the AltFi WealthTech Summit 2017!

One of the biggest themes of the day, aside from unstoppable digital disruption to financial services, was the growing trend for partnerships and white-labelling of technology from start up robo-advisers and digital wealth managers.

Firms such as Nutmeg, Scalable Capital, IG, Wealthify, Wealth Wizards, Money Farm, Moneybox, Fountain and Wealthsimple and many more were joined by incumbent financial services firms such as Deutsche Bank, Brewin Dolphin, HSBC, Coutts. Read on to find out disruptors and incumbents are working together.

Can the investment industry save capitalism? And will it?

Daniel Godfrey, Co-founder, The People's Trust

Since the GFC, wealth has not been shared throughout society. Increased populism is the electoral equivalent of peasants storming castle with pitchforks. People feel that they’re running faster to stand still (student loans, property prices, etc.). The only way you get productivity growth is through long-term investment.

The purpose of investment is sustainable wealth creation – that’s the only reason why anyone would hand their wealth over to another person. The output of sustainable wealth creation is compound interest – in Einstein’s words: the eighth wonder of the world. It’s the biggest driver of long-term positive outcomes.

Investment can save capitalism if it focuses on job creation/long-term/real investment. What’s the role of WealthTech? Crucial. Natural focus on getting cost down.

We pander to the natural short-termism and risk aversion of people. But I think people are quite capable of understanding that 20/30 year horizons, and some volatility, means a bigger pot at the end of the day – and is better than no volatility and a smaller pot over the short term. We need a roots-up revolution in investment that startups can drive. Investing and stewardship are key.

Robo Advice: Scaling up to profit

Adam French, Co-founder and CEO, Scalable Capital

Richard Flax, CIO, Moneyfarm

Luis Rivera, Co-Founder and CEO, ETFmatic

Dr Richard Theo, CEO and co-founder, Wealthify

Daniel Lanyon, Editor, AltFi

French: Scalable takes a two pronged approach, B2B and D2C. We wanted to make the technology as flexible as possible, dealing with different languages, tax, custodian banks, KYC/money laundering, regulation, etc. That allows us to scale more easily, and to build new systems easily. We have a partnership with ING. Distribution is hard, that’s no secret. We believe we can best achieve scale through a mix of our own business and reliance on distribution partners.

Theo: Brexit is the single biggest event causing uncertainty that has ever happened to this country. Our millennial focus is all about playing a long-term game.

Rivera: Scaling is about efficiency, in terms of customer acquisition costs, and other things, and all of us are significantly more efficient than incumbents. We have a distribution partnership with Revolut. It’s an exciting partnership because it opens a completely new segment across most of the countries we’re present in.

Flax: Partnerships are a part of our 5 year strategy but not a big part. You want to have investors with a long-term horizon. It takes a long time to build a brand in this industry.

We will lose clients when markets are going down (French), but technology can soften the blow.

How AI and blockchain will revolutionise digital wealth management

Dann Bibas, Founder, Fountain

Dan Tammas-Hastings, Managing Director & Founder, RiskSave

Aliya Ram, Journalist, Financial Times

Shaun Port, Chief Investment Officer, Nutmeg

Bibas: our users are starting to look at bitcoin, Ethereum, etc. People in their 20s/30s are particularly interested in cryptocurrencies. Bitcoin could be seen as an alternative to gold in the future. Fountain uses chatbots to collect data on popular questions and so understands what answers to provide. Chatbot/automated interface might not be right for all millennials, such as a multi-millionaire 30 year old.

Tamas-Hastings: Crypto is speculation rather than investing. Machine learning is useful mainly for onboarding and UX, but can also be useful in investment. Many chatbots are just simple script, and they’re not always appropriate at an early stage in development, unless they’re very advanced.

Port: We have machine learning projects across every department in Nutmeg. Over the last few years we’ve improved KYC/AML passports and improved pass rates, to improve our conversion; we’ve better understood optimal channels (doubled customers and lowered customer acquisition costs). We recently took all our data people from across many different teams and combined them into one team – that’s a huge amount of data. We’re really mining that data now to try to understand how our customers behave. It’s very hard but very important for incumbents to have a deep understanding of their data. Nutmeg has started with a clean sheet of paper, all cloud-based, and built its whole business around understanding data. The toolkit for asset allocation is going to drastically change in the next 5 years, despite not having changed for the past 25. IoT and big data will be big factors in this. IoT can offer live feed of productivity data in some ways – negating need for monthly updates, etc.

'Full Service' wealth management is going digital

Clem MacTaggart, Chief Operating Officer, Killik & Co

David Stevenson, Executive Director, AltFi

One of the key focuses for us is keeping the average age of customers down. It’s currently 57. We noticed that one of our competitors had lost more of its customers through death than via any other means.

We didn’t want to be a “robo-advisor”, we wanted to be an established brand with a better digital proposition. “So we went to Shoreditch,” and found bright young things who could build our idea. The proposition is called Silo – an intelligent savings app. It can analyse expenditure and make predictions about spending habits, then make savings suggestions. We’re not chasing millennials because they have no money. Looking at professionals who are well remunerated. We’ll then invest those savings on their behalf.

The digital wealth solution is there as a complementary thing. We like the phrase “bionic advisor”. Customers can opt for digital or human advisor, but will pay more for the latter. We’ll never chuck the advisor away, that’s the roots of our business.

Killick has spoken with P2P lenders to determine whether that would be a good product to add onto the digital wealth platform. We have a lot of cash that just sits around doing nothing.

Pensions: The big opportunity for WealthTech

Charlotte Ransom, Founder and CEO, Netwealth

Richard Flax, CIO, Moneyfarm

Simon Binney, Business Development Director, Wealth Wizards

John Stepek, Editor, MoneyWeek

Uday Bhaskar, Founder & CEO, WealthObjects

Ransom: We’re about controlling the controllables. A bunch of things are out of our control in economy, etc. But we can control diversification, tax wrappers, and price points. The fact we can so dramatically change the outcome of savings (stretching savings out with new freedoms) is what is so exciting.

Binney: The role of wealthtech is to engage people in a different way that is intuitive and that they are used to in other walks of life. The danger is that if we don’t embrace technology and make UX intuitive, we’ll scare people off.

Bhaskar: Being able to manage many different types of pension tax wrappers on one platform is key to getting young people on board with saving for pensions. We fundamentally believe that what we’re doing in this room [wealthtech] will become the norm in the future.

Flax: Wealthtech has a key role to play in bringing more transparency to the market, as pensions providers – many of them – have been opaque and overcharged. The regulator understands that there is an advice gap, and is keen to foster methods of addressing that.

Regulatory risk and delivering suitability

Financial Advice Market Review: all about closing the advice gap and what role tech can play. There are 28 recommendations and the FCA is in the process of implementing those.

MiFID II changes: explicit reference to the fact that the use of electronic services will not reduce the responsibility of firms.

ESMA CP: gives a good definition of robo-advisor and demonstrates a good appreciation by regulator. The UK market is ahead of the curve in the wealthtech space. Europe will in time be putting into place regulations that are similar to those that the FCA has imposed. Robo-advisors need to be able to explain the model they’re using: when there is human interaction, how does that work? How are suitability checks being conducted? Organisational arrangements: Where firms are relying on algorithms, are there people in the firm who understand how that works?

Streamlined advice: The regulator expects the firm itself to identify its target market and assess its risks in detail, and produce its own definition of risk and what that means for its target market. Crucially FCA says you have to come up with a filtering process (such as a decision tree) for filtering out those who are outside of your target market, e.g. do you have enough emergency savings? if not you should be exited, and may only come back when your emergency pot is built up sufficiently. There is a broad universe of risks to consider in determining whether a customer is in or out of a streamlined advisor’s scope of activity. You have to show stats to regulators on how many clients you say no to. It’s not credible that everyone who comes to your platform will fall into your model. Applying behavioural analytics to customers bases is seen as best practice by FCA.

Why WealthSimple is launching in the UK

Toby Triebel, CEO Europe, Wealthsimple

Daniel Lanyon, Editor, AltFi

We don’t know exactly who the customer is in the UK. Our services are open to anyone. Oldest customer in Canada is 104 years. The plan is to help the full spectrum of UK residents.

We made the decision a long time ago to be a global player. Decision to launch in UK pre-dated Brexit, and Brexit had no affect on the decision. There is a tremendous amount of wealth and of people in the UK that would like cheaper/easier access to wealth services.

You can’t just copy-paste the Canadian product and bring it to the UK, every market has local needs and requirements and the product must be localised for each geography.

“We’re looking to build a lifestyle brand for financial services.” Investing is scary at times – we want to demystify it. We talk to a lot of celebs about their relationship with money, including Elijah Wood, John Hamm, etc. It’s all about humanising money.

We are a balance of tech and people, and are authorised by the FCA to give real investment advice.

Dr. Ella Rabener, UK Co-Founder & Global CMO, Scalable Capital

Dan Tammas-Hastings, Managing Director & Founder, RiskSave

Daniel Lanyon, Editor, AltFi

Ben Stanway, Co-Founder, MoneyBox

Moneybox targets under-40s. The problem it’s trying to solve is very different to the problem Scalable is trying to. They do a little bit of above-the-line marketing but a small amount. Messaging: the concept of round-ups is very effective. A challenge the industry faces is figuring out ways to inspire action today. One way we’d found effective is the round-up concept, and being mobile, and making it very easy.

Being an ING client means clients don’t need to go through KYC/AML checks with Scalable, which makes the process more seamless. The endorsement of ING is also very useful.

Tamas-Hastings: Standalone D2C models have never been successful, hence the B2B model.

There’s nothing strange or dangerous about ETFs, says Rabener. But she would encourage the regulator to dig into the risks of them, because there’s a lot of speculative concern about the risks, but nobody really knows what they are. Rabener also says there’s no meaningful difference between the regulatory environments in the UK and in Germany, despite a slightly quicker authorisation process in Germany. Both regulators really support innovation. In the future, with the help of PSD2, Scalable will explore allowing users to add other portfolios (savings, for example) so that users can see all portfolios on a single platform, and perhaps Scalable could even help them to optimise those external portfolios.

Horizon 2022 and 2027: Beyond low cost

Peter Wilson, Partner, Moulsford Management

Max Rofagha, CEO, Finimize

Richard Wazacz, Head of Octopus Choice, Octopus Choice

Rohin Modasia, CEO, Global Alternatives

Joe Parkin, Head of UK Wealth and Retail, iShares

Finimize is using a content/education strategy to acquire customers for its financial advisory service, and has over 150,000 subscribers to its daily financial news distillation newsletter (a 3 min read). We’re experiencing the biggest transferral of inter-generational wealth in the history of mankind. 80 per cent of those assets will not stay with current FAs. Where will they go? Fintech.

Global Alternatives don’t think they’re taking share from anyone as they’re creating a new asset class – in an institution-friendly format and instantly tradable. What could the space look like if you had the likes of Google, Amazon and Facebook entering? They have huge amount of data, and that is power.

Parkin: greatest impact of wealthtech will be in two areas. First, advisors. There’s an opportunity to digitise every single part of the value chain, bringing a great deal more efficiency. The second area is the huge number of people in the UK who’re being completely forgotten about, a situation which is becoming worse with RDR. One of the biggest social problems we have is that people are living longer and aren’t going to have enough money for retirement. Nobody has really been solving that, bar robo-advisors. Big tech giants at the moment aren’t coming into our industry because they don’t want to be regulated. Open Banking might well change that because they’ll use the Open Banking framework to own the customer and farm out financial services to other providers behind the scenes.

Wazacz: Incumbent banks will become factories/piping in Open Banking environment.

Wazacz: If you’re going to be around in 10 years time and be a really big company, you have to be a tech company that’s really good at financial services, rather than the other way around. Cost is a big challenge for incumbents. If you could build tech into their businesses, you could pass huge amount of savings to users and still be profitable. Empathy in financial services is also very important. A personal touch, individual-level services – these are key outcomes to deliver.

Why IG is launching a robo advice service

Ian Peacock, Head of IG, UK & Ireland, IG Group

David Stevenson, Executive Director, AltFi

Robo-advice looks a very interesting industry, but the problem is – if you’re a startup and this is all you’re doing, you’re going to struggle. It’s a great industry to disrupt, but can’t be done unless you’re a business with funds, customers and resources.

IG has active/engaged clients. The average customer trades their money 4 times a day on the platform, the most active 25 times a day. Many of them are coders, bankers, traders, etc. They’re innovative technology adopters. They’ve all got speculative short-term wallets which we were tapping into. And long-term wallets which we weren’t tapping into – hence the launch of our robo-advisor.

Our average client’s investable wealth sits just shy of £100k. We have a lot of people dropping large amounts into the robo platform.

Acquisition to brand ratio in terms of marketing spend becomes more pronounced the more you grow. At startup stage, it’s mostly brand, as a means of developing trust, then more and more acquisition as a company grows. IG is almost 90% acquisition these days.

15 per cent of our clients have P2P investments and another 10 per cent are considering it. IG is considering a move into the P2P market. As an equity alternative fixed income play, P2P has a place, particularly with whole loan book analysis now available for portfolio construction.

Compliance, disclosure and transparency:

Alex Pillow, Business development director, RDC

Aloysius Fekete, Chief Product Officer, AltFi Data

Peter Wilson, Senior Associate, Taylor Wessing

For P2P to thrive and scale there needs to be an associated third party provider of analytics. AltFi Data takes cashflows and generates analytics that represent the performance of the book.

Fekete: One of the most important things in the mind of investors in both P2P and robo is what return are the investors getting, and seeing that return that in a uniform way. Robos might consider starting to portray the returns of their investors in a uniform way and through a uniform methodology too. Robo is younger than P2P but they might consider it. Some have implemented their own methodologies – which is fine – but inferior to a third-party view. Scalable for example has revealed its first year performance. The question will ultimately become one of comparison between platforms.

Pillow: Most of the guys in the robo space want to segment their client book because you don’t want to go beyond the bare minimum in checks for clients that you’re not making a lot of money on – but at the top-end you need to be extra careful. Compliance will always have a human touch. AI/machine learning is still at an early stage, but ultimately there’ll still be a person responsible. With more data the regtech process can become more efficient but there’ll always be a human element.

What does great customer UX Look like in online wealth management?

Daniel Gilomen, Commercial Director, True Wealth

Ryan Weeks, Editor, AltFi

Jasper Martens, VP Marketing, PensionBee

Jeff Shin, Senior Product Designer, Wealthsimple

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About AltFi

Altfi provides market-leading news, insights and data on the rapidly growing alternative finance and fintech world. Our core focus is on alternative lenders, including both peer-to-peer/marketplace lenders and direct lenders as well as investment in alternative credit, equity crowdfunding, challenger banks and robo-advice. In addition, AltFi runs major industry conferences and seminars globally, and our sister company AltFi Data is widely regarded as the premier source of institution-grade analytics for alternative finance.